|                                                                                         |  | 
|---------------------------------------------------------------------------------------- |  | 
|UNITED
STATES SECURITIES AND EXCHANGE COMMISSION                                        
|Washington
D.C. 20549                                                                   
|                                                                                        
|                                                                                         |  | 
|                                                                                        
|FORM
10-Q                                                                               
|                                                                                         |  | 
|                                                                                         |  | 
|                                                                                        
|                                                                                        
|QUARTERLY REPORT PURSUANT
 TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the quarterly period
 ended March 31, 2009                                          
|                                                                                        
|Commission
 File Number 0-20050                                                         
|                                                                                         |  | 
|                                                                                         |  | 
|                                                                                        
|PRINCETON
NATIONAL BANCORP, INC.                                                        
|(Exact
 name of registrant as specified in its charter)                                 

|                                                                 |  |                                      
|---------------------------------------------------------------- |  | -------------------------------------
|Delaware                                                         |  | 36-3210283                           
|(State
 or other jurisdiction
 of incorporation or organization) |  | (I.R.S.
 Employer Identification No.)

606 S. Main Street, Princeton, IL 61356(Address of principal
executive offices and Zip Code)

(815) 875-4444 (Registrants telephone number, including
area code)

| |  | 
| |  | 
| |  | 

Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding twelve months (or for such shorter period that the registrant was
required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act.

|                           |  |  
|-------------------------- |  | -
|Large
 accelerated filer   |  | o
|Accelerated
 filer         |  | x
|Non-accelerated
 filer     |  | o
|Smaller
 reporting company |  | o

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).

Yes o No x

As of April 30, 2009, the registrant had outstanding 3,300,139
shares of its $5 par value common stock.

Page 1 of 34 pages







Part I: FINANCIAL INFORMATION

The
unaudited consolidated financial statements of Princeton National Bancorp, Inc.
and Subsidiary and managements discussion and analysis of financial condition
and results of operation are presented in the schedules as follows:

| |             |                                                                                       
| | ----------- | --------------------------------------------------------------------------------------
| | Schedule 1: | Consolidated
 Balance Sheets                                                          
| | Schedule 2: | Consolidated
 Statements of Income                                                    
| | Schedule 3: | Consolidated
 Statements of Stockholders Equity                                      
| | Schedule 4: | Consolidated
 Statements of Cash Flows                                                
| | Schedule 5: | Notes to
 Consolidated Financial Statements                                           
| | Schedule 6: | Managements Discussion and Analysis of
 Financial Condition and Results of Operations
| | Schedule 7: | Controls and
 Procedures                                                              

Part II: OTHER INFORMATION

Item 1A. Risk Factors

The
current volatility in economic conditions and the financial markets may
adversely affect our industry, business and financial performance. The past six
months have witnessed unprecedented disruptions in financial markets, including
volatility in asset values and constraints on the availability of credit. In
response to these developments, the U.S. government has taken, and may take
further, steps designed to stabilize markets generally and strengthen financial
institutions in particular. The impact, if any, that these financial market
events or these governmental actions might have on the Company and its business
is uncertain and cannot be estimated at this time. Item 1A (Risk Factors) of
the Companys Annual Report on Form 10-K for the year ended December 31, 2008
discusses some of the principal risks inherent in the Companys business,
including interest rate risks, liquidity risks, credit risks, operational
risks, risks from economic or market conditions and general business risks
among others. The current upheaval in financial markets has accentuated each of
these risks and magnified their potential effect on the Company.

At
the same time, there appears to be a general weakening of the U.S. economy. To
the extent these economic developments continue to worsen, and to the extent
legislation or regulatory action adversely affects the U.S. economy, the
Companys access to capital or the credit quality of the Companys loan
portfolio, or imposes additional limitations or costs on the Companys business,
there could be an adverse impact on the Companys costs, credit losses, access
to capital or liquidity.

2

---



Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | On January
 23, 2009, the Corporation completed the sale of $25.1 million of preferred
 stock and a warrant to purchase common stock to the United States Department
 of the Treasury (the U.S. Treasury) under U.S. Treasurys Capital Purchase
 Program under the Emergency Economic Stabilization Act of 2008 (EESA). The
 Corporation issued and sold (1) 25,083 shares of Fixed Rate Cumulative
 Perpetual Preferred Stock Series B, liquidation preference of $1,000 per
 share (the Series B Preferred Shares), and (2) a ten-year warrant (the
 Warrant) to purchase up to 155,025 shares of the Corporations common stock
 at an exercise price of $24.27 per share, or an aggregate purchase price of
 $3.8 million in cash. The issuance of the Series B Preferred Shares and the
 Warrant was exempt from registration as a transaction by an issuer not involving
 any public offering under Section 4(2) of the Securities Act of 1933. $16.1
 million of the proceeds were used to repay a note payable (see Managements
 Discussion and Analysis of Financial Condition and Results of Operations)
 with the remainder of the proceeds to be used to fund loan growth.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (c) | The
 following table provides information about purchases of the Corporations
 common stock by the Corporation during the quarter ended March 31, 2009:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                  |  |                                       |   |                                   |   |                                                                                           |  |                                                                                                                       |   |  |  |        | 
|----------------- |  | ------------------------------------- | - | --------------------------------- | - | ----------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------- | - |  |  | ------ | 
|Period            |  | (a) Total number of
 shares purchased |   | (b) Average price paid
 per share |   | (c) Total number
 of shares purchased
 as part of 
 publicly announced
 plans or programs |  | (d) Maximum number
 (or approximate dollar
 value) of shares that
 may yet be purchased
 under the plans or
 programs |  
|1/1/09
 -1/31/09  |  |                                       | 0 |                                   | $ | 0.00                                                                                      |  |                                                                                                                       | 0 |  |  | 20,000 | 
|2/1/09
 -2/28/09  |  |                                       | 0 |                                   | $ | 0.00                                                                                      |  |                                                                                                                       | 0 |  |  | 20,000 | 
|3/1/09
  3/31/09 |  |                                       | 0 |                                   | $ | 0.00                                                                                      |  |                                                                                                                       | 0 |  |  | 20,000 | 
|                 
|Total             |  |                                       | 0 |                                   | $ | 0.00                                                                                      |  |                                                                                                                       | 0 |  |  | 20,000 | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On April 24, 2007, the Board of Directors approved
 the repurchase of up to an aggregate of 50,000 shares of our common stock
 pursuant to a repurchase program announced the same day (the Program). The
 original expiration date of this Program was April 24, 2008, but was extended
 to October 24, 2008 by the Board of Directors at their meeting held on April
 28, 2008. On October 27, 2008, the Board of Directors approved a new 50,000
 share repurchase program that will expire on October 27, 2009. Unless
 terminated earlier by resolution of our Board of Directors, the Program will
 expire on the earlier of such expiration date or when we have repurchased all
 shares authorized for repurchase under the Program.

3

---



Item 6. Exhibits

| |      |  |                                                                                                                                                                                                                                                              
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.1  |  | Certificate
 of Designations for the Series B Preferred Stock (incorporated by reference
 from the Form 8-K filed on January 27, 2009).                                                                                                                      
| |      |  |                                                                                                                                                                                                                                                              
| | 4.1  |  | Warrant to
 purchase up to 155,025 shares of Common Stock issued January 23, 2009
 (incorporated by reference from the Form 8-K filed on January 29, 2009).                                                                                                  
| |      |  |                                                                                                                                                                                                                                                              
| | 10.1 |  | Letter
 Agreement dated January 23, 2009 including the Securities Purchase Agreement  Standard Terms incorporated by
 reference therein between the Company
 and the U.S. Treasury (incorporated by reference from the Form 8-K filed on
 January 29, 2009).
| |      |  |                                                                                                                                                                                                                                                              
| | 10.2 |  | Form of
 Waiver of Senior Executive Officers (incorporated by reference from the Form
 8-K filed on January 29, 2009).                                                                                                                                       
| |      |  |                                                                                                                                                                                                                                                              
| | 10.3 |  | Form of
 Omnibus Amendment Agreement (incorporated by reference from the Form 8-K
 filed on January 29, 2009).                                                                                                                                               
| |      |  |                                                                                                                                                                                                                                                              
| | 31.1 |  | Certification
 of Tony J. Sorcic required by Rule 13a-14(a).                                                                                                                                                                                                 
| |      |  |                                                                                                                                                                                                                                                              
| | 31.2 |  | Certification
 of Todd D. Fanning required by Rule 13a-14(a).                                                                                                                                                                                                
| |      |  |                                                                                                                                                                                                                                                              
| | 32.1 |  | Certification
 of Tony J. Sorcic required by Rule 13a-14(b) and Section 906 of the
 Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.                                                                                                                      
| |      |  |                                                                                                                                                                                                                                                              
| | 32.2 |  | Certification
 of Todd D. Fanning required by Rule 13a-14(b) and Section 906 of the
 Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.                                                                                                                     

SIGNATURES

Pursuant to
the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.

PRINCETON NATIONAL BANCORP, INC.

|   |                                     |  |    |                                 
|-- | ----------------------------------- |  | -- | --------------------------------
|By | /s/ Tony J.
 Sorcic                 |  | By | /s/ Todd D.
 Fanning            
|   | Tony J.
 Sorcic                     |  |    | Todd D.
 Fanning                
|   | President & Chief Executive Officer |  |    | Sr. VP & Chief Financial Officer
|   | May 11, 2009                        |  |    | May 11, 2009                    

4

---



Schedule 1

PRINCETON NATIONAL BANCORP, INC. AND
SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)

|                                                                                                                    |  |                              |           |                    |   |           |  
|------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | --------- | ------------------ | - | --------- | -
|                                                                                                                    |  | March 31,
 2009
 (unaudited) |           | December 31,
 2008 |  
|ASSETS                                                                                                              |  |                              |           |                    |   |           |  
|Cash and due from banks                                                                                             |  | $                            | 67,755    |                    | $ | 20,163    |  
|Interest-bearing deposits with financial
 institutions                                                              |  |                              | 113       |                    |   | 98        |  
|                                                                                                                    |  |                              |           |                    |   |           |  
|Total cash and cash equivalents                                                                                     |  |                              | 67,868    |                    |   | 20,261    |  
|                                                                                                                    |  |                              |           |                    |   |           |  
|Loans held for sale, at lower of cost or
 market                                                                    |  |                              | 1,084     |                    |   | 2,155     |  
|                                                                                                                    |  |                              |           |                    |   |           |  
|Investment securities:                                                                                              |  |                              |           |                    |   |           |  
|Available-for-sale, at fair value                                                                                   |  |                              | 259,397   |                    |   | 236,883   |  
|Held-to-maturity, at amortized cost (fair
 value of $15,466 and $14,461)                                            |  |                              | 15,137    |                    |   | 14,232    |  
|                                                                                                                    |  |                              |           |                    |   |           |  
|Total investment securities                                                                                         |  |                              | 274,534   |                    |   | 251,115   |  
|                                                                                                                    |  |                              |           |                    |   |           |  
|Loans:                                                                                                              |  |                              |           |                    |   |           |  
|Loans, net of unearned interest                                                                                     |  |                              | 774,802   |                    |   | 790,837   |  
|Allowance for loan losses                                                                                           |  |                              | (5,864    | )                  |   | (5,064    | )
|                                                                                                                    |  |                              |           |                    |   |           |  
|Net loans                                                                                                           |  |                              | 768,938   |                    |   | 785,773   |  
|                                                                                                                    |  |                              |           |                    |   |           |  
|Premises and equipment, net of accumulated
 depreciation                                                            |  |                              | 29,243    |                    |   | 29,297    |  
|Land held for sale, at lower of cost or
 market                                                                     |  |                              | 2,354     |                    |   | 2,354     |  
|Federal Reserve and Federal Home Loan Bank
 stock                                                                   |  |                              | 4,211     |                    |   | 4,211     |  
|Bank-owned life insurance                                                                                           |  |                              | 21,842    |                    |   | 21,588    |  
|Accrued interest receivable                                                                                         |  |                              | 8,301     |                    |   | 9,693     |  
|Other real estate owned                                                                                             |  |                              | 3,170     |                    |   | 2,487     |  
|Goodwill                                                                                                            |  |                              | 24,521    |                    |   | 24,521    |  
|Intangible assets, net of accumulated
 amortization                                                                 |  |                              | 3,991     |                    |   | 4,207     |  
|Other assets                                                                                                        |  |                              | 5,427     |                    |   | 5,468     |  
|                                                                                                                   
|TOTAL ASSETS                                                                                                        |  | $                            | 1,215,484 |                    | $ | 1,163,130 |  
|                                                                                                                    |  |                              |           |                    |   |           |  
|LIABILITIES                                                                                                         |  |                              |           |                    |   |           |  
|Deposits:                                                                                                           |  |                              |           |                    |   |           |  
|Demand                                                                                                              |  | $                            | 105,477   |                    | $ | 110,559   |  
|Interest-bearing demand                                                                                             |  |                              | 256,113   |                    |   | 246,714   |  
|Savings                                                                                                             |  |                              | 66,234    |                    |   | 61,089    |  
|Time                                                                                                                |  |                              | 583,140   |                    |   | 543,770   |  
|                                                                                                                    |  |                              |           |                    |   |           |  
|Total deposits                                                                                                      |  |                              | 1,010,964 |                    |   | 962,132   |  
|                                                                                                                    |  |                              |           |                    |   |           |  
|Borrowings:                                                                                                         |  |                              |           |                    |   |           |  
|Customer repurchase agreements                                                                                      |  |                              | 38,799    |                    |   | 35,532    |  
|Federal funds purchased                                                                                             |  |                              | 0         |                    |   | 6,500     |  
|Interest-bearing demand notes issued to the
 U.S. Treasury                                                          |  |                              | 773       |                    |   | 2,441     |  
|Advances from the Federal Home Loan Bank                                                                            |  |                              | 32,494    |                    |   | 32,493    |  
|Trust preferred securities                                                                                          |  |                              | 25,000    |                    |   | 25,000    |  
|Note payable                                                                                                        |  |                              | 0         |                    |   | 16,050    |  
|                                                                                                                    |  |                              |           |                    |   |           |  
|Total borrowings                                                                                                    |  |                              | 97,066    |                    |   | 118,016   |  
|                                                                                                                    |  |                              |           |                    |   |           |  
|Other liabilities                                                                                                   |  |                              | 9,499     |                    |   | 10,511    |  
|                                                                                                                   
|TOTAL LIABILITIES                                                                                                   |  |                              | 1,117,529 |                    |   | 1,090,659 |  
|                                                                                                                    |  |                              |           |                    |   |           |  
|STOCKHOLDERS EQUITY                                                                                                |  |                              |           |                    |   |           |  
|Preferred stock, no par value; 100,000
 shares authorized; 25,083 shares issued and outstanding at March 31, 2009   |  |                              | 24,938    |                    |   |          |  
|Common stock: $5 par value, 7,000,000
 shares authorized; 4,478,295 shares issued                                   |  |                              | 22,391    |                    |   | 22,391    |  
|Common stock warrants                                                                                               |  |                              | 150       |                    |   |           |  
|Additional paid-in capital                                                                                          |  |                              | 18,377    |                    |   | 18,420    |  
|Retained earnings                                                                                                   |  |                              | 54,479    |                    |   | 54,329    |  
|Accumulated other comprehensive income, net
 of taxes                                                               |  |                              | 1,655     |                    |   | 1,402     |  
|Less: Cost of 1,178,156 and 1,180,254
 treasury common shares at March 31, 2009 and December 31, 2008, respectively |  |                              | (24,035   | )                  |   | (24,071   | )
|                                                                                                                   
|TOTAL STOCKHOLDERS EQUITY                                                                                          |  |                              | 97,955    |                    |   | 72,471    |  
|                                                                                                                    |  |                              |           |                    |   |           |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                          |  | $                            | 1,215,484 |                    | $ | 1,163,130 |  

See accompanying notes to unaudited
consolidated financial statements

5

---



Schedule 2

PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME(Unaudited)
(dollars in thousands, except share data)

|                                                                     |  |                                      |           |      |   |           | 
|-------------------------------------------------------------------- |  | ------------------------------------ | --------- | ---- | - | --------- | 
|                                                                     |  | For the Three Months
 Ended March 31 |          
|                                                                     |  | 2009                                 |           | 2008 |  
|Interest
 income:                                                    |  |                                      |           |      |   |           | 
|Interest and fees on loans                                           |  | $                                    | 11,059    |      | $ | 12,350    | 
|Interest on investment securities:                                   |  |                                      |           |      |   |           | 
|Taxable                                                              |  |                                      | 1,803     |      |   | 1,617     | 
|Non-taxable                                                          |  |                                      | 1,128     |      |   | 1,062     | 
|Interest on federal funds sold                                       |  |                                      | 0         |      |   | 25        | 
|Interest on interest-bearing time deposits in other banks            |  |                                      | 16        |      |   | 12        | 
|                                                                    
|Total interest income                                                |  |                                      | 14,006    |      |   | 15,066    | 
|                                                                     |  |                                      |           |      |   |           | 
|Interest
 expense:                                                   |  |                                      |           |      |   |           | 
|Interest on deposits                                                 |  |                                      | 5,147     |      |   | 6,674     | 
|Interest on borrowings                                               |  |                                      | 780       |      |   | 938       | 
|                                                                    
|Total interest expense                                               |  |                                      | 5,927     |      |   | 7,612     | 
|Net
 interest income                                                 |  |                                      | 8,079     |      |   | 7,454     | 
|Provision for loan losses                                            |  |                                      | 1,170     |      |   | 368       | 
|Net
 interest income after provision for loan losses                 |  |                                      | 6,909     |      |   | 7,086     | 
|                                                                     |  |                                      |           |      |   |           | 
|Non-interest
 income:                                                |  |                                      |           |      |   |           | 
|Trust & farm management fees                                         |  |                                      | 314       |      |   | 476       | 
|Service charges on deposit accounts                                  |  |                                      | 976       |      |   | 1,092     | 
|Other service charges                                                |  |                                      | 446       |      |   | 457       | 
|Gain on sales of securities available-for-sale                       |  |                                      | 187       |      |   | 276       | 
|Brokerage fee income                                                 |  |                                      | 198       |      |   | 219       | 
|Mortgage banking income, net                                         |  |                                      | 1         |      |   | 348       | 
|Bank-owned life insurance income                                     |  |                                      | 243       |      |   | 215       | 
|Other operating income                                               |  |                                      | 430       |      |   | 70        | 
|                                                                    
|Total non-interest income                                            |  |                                      | 2,795     |      |   | 3,153     | 
|                                                                     |  |                                      |           |      |   |           | 
|Non-interest
 expense:                                               |  |                                      |           |      |   |           | 
|Salaries and employee benefits                                       |  |                                      | 4,471     |      |   | 4,398     | 
|Occupancy                                                            |  |                                      | 709       |      |   | 679       | 
|Equipment expense                                                    |  |                                      | 773       |      |   | 718       | 
|Federal insurance assessments                                        |  |                                      | 697       |      |   | 84        | 
|Intangible assets amortization                                       |  |                                      | 208       |      |   | 179       | 
|Data processing                                                      |  |                                      | 316       |      |   | 277       | 
|Advertising                                                          |  |                                      | 197       |      |   | 168       | 
|Other operating expense                                              |  |                                      | 1,281     |      |   | 1,057     | 
|                                                                    
|Total non-interest expense                                           |  |                                      | 8,652     |      |   | 7,560     | 
|                                                                    
|Income
 before income taxes                                          |  |                                      | 1,052     |      |   | 2,679     | 
|Income tax expense
 (benefit)                                        |  |                                      | (104      | )    |   | 589       | 
|                                                                    
|Net income                                                           |  |                                      | 1,156     |      |   | 2,090     | 
|                                                                     |  |                                      |           |      |   |           | 
|Preferred stock dividends                                            |  |                                      | 237       |      |   |          | 
|Accretion of preferred
 stock discount                               |  |                                      | 5         |      |   |          | 
|                                                                    
|Net income
 available to common stockholders                         |  | $                                    | 914       |      | $ | 2,090     | 
|Per share
 information:                                              |  |                                      |           |      |   |           | 
|BASIC net income per common share available to common
stockholders   |  |                                      | 0.28      |      |   | 0.63      | 
|DILUTED net income per common share available to common
stockholders |  |                                      | 0.28      |      |   | 0.63      | 
|                                                                     |  |                                      |           |      |   |           | 
|Basic weighted average
 shares outstanding                           |  |                                      | 3,298,064 |      |   | 3,304,063 | 
|Diluted weighted average
 shares outstanding                         |  |                                      | 3,298,725 |      |   | 3,309,907 | 

See accompanying notes to unaudited consolidated
financial statements

6

---



Schedule 3

|                                                          
|----------------------------------------------------------
|PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY           
|CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
|(Unaudited)                                               
|(dollars in thousands except per share data)              

|                                                                                                 |  |                  |        |               |   |                         |  |                              |     |                    |   |                                                               |   |                 |        |       |   |       |  |    |        |   |   |        |  
|------------------------------------------------------------------------------------------------ |  | ---------------- | ------ | ------------- | - | ----------------------- |  | ---------------------------- | --- | ------------------ | - | ------------------------------------------------------------- | - | --------------- | ------ | ----- | - | ----- |  | -- | ------ | - | - | ------ | -
|For the
 Three Months Ended
 March 31, 2009                                                      |  | Preferred
 Stock |        | Common
 Stock |   | Common
 Stock
 Warrants |  | Additional
 Paid-in
 Capital |     | Retained
 Earnings |   | Accumulated
 Other
 Comprehensive
 Income,
 net of tax effect |   | Treasury
 Stock |        | Total |  
|                                                                                                
|Balance, January 1, 2009                                                                         |  | $                |       |               | $ | 22,391                  |  | $                            |    |                    | $ | 18,420                                                        |   | $               | 54,329 |       | $ | 1,402 |  | ($ | 24,071 | ) | $ | 72,471 |  
|                                                                                                 |  |                  |        |               |   |                         |  |                              |     |                    |   |                                                               |   |                 |        |       |   |       |  |    |        |   |   |        |  
|Net income                                                                                       |  |                  |        |               |   |                         |  |                              |     |                    |   |                                                               |   |                 | 1,156  |       |   |       |  |    |        |   |   | 1,156  |  
|Issuance of 25,083 shares of preferred stock and 155,025 common stock
 warrants, net of expenses |  |                  | 24,933 |               |   |                         |  |                              | 150 |                    |   | (63                                                           | ) |                 |        |       |   |       |  |    |        |   |   | 25,020 |  
|Dividends on preferred stock                                                                     |  |                  |        |               |   |                         |  |                              |     |                    |   |                                                               |   |                 | (78    | )     |   |       |  |    |        |   |   | (78    | )
|Accretion on preferred stock discount                                                            |  |                  | 5      |               |   |                         |  |                              |     |                    |   |                                                               |   |                 | (5     | )     |   |       |  |    |        |   |   |       |  
|Sale of 2,098 shares of treasury common stock                                                    |  |                  |        |               |   |                         |  |                              |     |                    |   | (4                                                            | ) |                 |        |       |   |       |  |    | 36     |   |   | 32     |  
|Dividends on common stock ($.28 per share)                                                       |  |                  |        |               |   |                         |  |                              |     |                    |   |                                                               |   |                 | (923   | )     |   |       |  |    |        |   |   | (923   | )
|Stock option compensation expense                                                                |  |                  |        |               |   |                         |  |                              |     |                    |   | 24                                                            |   |                 |        |       |   |       |  |    |        |   |   | 24     |  
|Other comprehensive income, net of $160 tax effect                                               |  |                  |        |               |   |                         |  |                              |     |                    |   |                                                               |   |                 |        |       |   | 253   |  |    |        |   |   | 253    |  
|                                                                                                 |  |                  |        |               |   |                         |  |                              |     |                    |   |                                                               |   |                 |        |       |   |       |  |    |        |   |   |        |  
|Balance, March 31, 2009                                                                          |  | $                | 24,938 |               | $ | 22,391                  |  | $                            | 150 |                    | $ | 18,377                                                        |   | $               | 54,479 |       | $ | 1,655 |  | ($ | 24,035 | ) | $ | 97,955 |  
|                                                                                                
|For the Three Months Ended
 March 31, 2008                                                       |  |                  |        |               |   |                         |  |                              |     |                    |   |                                                               |   |                 |        |       |   |       |  |    |        |   |   |        |  
|                                                                                                 |  |                  |        |               |   |                         |  |                              |     |                    |   |                                                               |   |                 |        |       |   |       |  |    |        |   |   |        |  
|Balance, January 1, 2008                                                                         |  | $                |       |               | $ | 22,391                  |  | $                            |    |                    | $ | 18,275                                                        |   | $               | 51,279 |       | $ | 344   |  | ($ | 23,682 | ) | $ | 68,607 |  
|                                                                                                 |  |                  |        |               |   |                         |  |                              |     |                    |   |                                                               |   |                 |        |       |   |       |  |    |        |   |   |        |  
|Net income                                                                                       |  |                  |        |               |   |                         |  |                              |     |                    |   |                                                               |   |                 | 2,090  |       |   |       |  |    |        |   |   | 2,090  |  
|Purchase of 10,000 shares of treasury common stock                                               |  |                  |        |               |   |                         |  |                              |     |                    |   |                                                               |   |                 |        |       |   |       |  |    | (270   | ) |   | (270   | )
|Sale of 1,043 shares of treasury common stock                                                    |  |                  |        |               |   |                         |  |                              |     |                    |   | 10                                                            |   |                 |        |       |   |       |  |    | 18     |   |   | 28     |  
|Dividends on common stock ($.28 per share)                                                       |  |                  |        |               |   |                         |  |                              |     |                    |   |                                                               |   |                 | (926   | )     |   |       |  |    |        |   |   | (926   | )
|Stock option compensation expense                                                                |  |                  |        |               |   |                         |  |                              |     |                    |   | 21                                                            |   |                 |        |       |   |       |  |    |        |   |   | 21     |  
|Adjustment to apply EITF 06-4                                                                    |  |                  |        |               |   |                         |  |                              |     |                    |   |                                                               |   |                 | (579   | )     |   |       |  |    |        |   |   | (579   | )
|                                                                                                 |  |                  |        |               |   |                         |  |                              |     |                    |   |                                                               |   |                 |        |       |   |       |  |    |        |   |   |        |  
|Other comprehensive income, net of $778 tax effect                                               |  |                  |        |               |   |                         |  |                              |     |                    |   |                                                               |   |                 |        |       |   | 1,230 |  |    |        |   |   | 1,230  |  
|                                                                                                 |  |                  |        |               |   |                         |  |                              |     |                    |   |                                                               |   |                 |        |       |   |       |  |    |        |   |   |        |  
|Balance, March 31, 2008                                                                          |  | $                |       |               | $ | 22,391                  |  | $                            |    |                    | $ | 18,306                                                        |   | $               | 51,864 |       | $ | 1,574 |  | ($ | 23,934 | ) | $ | 70,201 |  

See accompanying notes to unaudited consolidated
financial statements

7

---



|                                                |           
|----------------------------------------------- | ----------
|PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY | Schedule 4
|CONSOLIDATED STATEMENTS OF CASH FLOWS           |           
|(Unaudited)                                     |           
|(dollars in thousands)                          |           

|                                                                                      |  |                                      |         |      |   |         |  
|------------------------------------------------------------------------------------- |  | ------------------------------------ | ------- | ---- | - | ------- | -
|                                                                                      |  | For the Three Months Ended
 March 31 |        
|                                                                                      |  | 2009                                 |         | 2008 |  
|Operating activities:                                                                 |  |                                      |         |      |   |         |  
|Net income                                                                            |  | $                                    | 1,156   |      | $ | 2,090   |  
|Adjustments to reconcile net income to net
 cash provided by operating activities:    |  |                                      |         |      |   |         |  
|Depreciation                                                                          |  |                                      | 564     |      |   | 574     |  
|Provision for loan losses                                                             |  |                                      | 1,170   |      |   | 368     |  
|Amortization of intangible assets and other
 purchase accounting adjustments, net     |  |                                      | 208     |      |   | 208     |  
|Amortization (accretion) of premiums and
 discounts on investment securities, net     |  |                                      | 185     |      |   | (33     | )
|Gain on sales of securities
 available-for-sale, net                                  |  |                                      | (187    | )    |   | (276    | )
|Impairment of mortgage servicing rights                                               |  |                                      | 556     |      |   | 0       |  
|Compensation expense for vested stock
 options                                        |  |                                      | 24      |      |   | 21      |  
|Gain (loss) on sales of other real estate
 owned, net                                 |  |                                      | 0       |      |   | 7       |  
|Loans originated for sale                                                             |  |                                      | (30,651 | )    |   | (33,037 | )
|Proceeds from sales of loans originated for
 sale                                     |  |                                      | 31,722  |      |   | 30,787  |  
|Increase in accrued interest payable                                                  |  |                                      | 153     |      |   | 16      |  
|Decrease in accrued interest receivable                                               |  |                                      | 1,392   |      |   | 2,609   |  
|(Increase) decrease in other assets                                                   |  |                                      | (779    | )    |   | 1,131   |  
|Decrease in other liabilities                                                         |  |                                      | (1,325  | )    |   | (919    | )
|                                                                                      |  |                                      |         |      |   |         |  
|Net cash provided by operating
activities                                             |  |                                      | 4,188   |      |   | 3,546   |  
|                                                                                      |  |                                      |         |      |   |         |  
|Investing activities:                                                                 |  |                                      |         |      |   |         |  
|Proceeds from sales of investment
 securities available-for-sale                      |  |                                      | 18,197  |      |   | 8,670   |  
|Proceeds from maturities of investment
 securities available-for-sale                 |  |                                      | 21,263  |      |   | 13,789  |  
|Purchase of investment securities available-for-sale                                  |  |                                      | (61,554 | )    |   | (22,691 | )
|Proceeds from maturities of investment
 securities held-to-maturity                   |  |                                      | 1,005   |      |   | 580     |  
|Purchase of investment securities
 held-to-maturity                                   |  |                                      | (1,915  | )    |   | (1,594  | )
|Proceeds from sales of other real estate
 owned                                       |  |                                      | 0       |      |   | 263     |  
|Net decrease (increase) in loans                                                      |  |                                      | 15,002  |      |   | (7,539  | )
|Purchases of premises and equipment                                                   |  |                                      | (510    | )    |   | (239    | )
|                                                                                      |  |                                      |         |      |   |         |  
|Net cash used in investing activities                                                 |  |                                      | (8,512  | )    |   | (8,761  | )
|                                                                                      |  |                                      |         |      |   |         |  
|Financing activities:                                                                 |  |                                      |         |      |   |         |  
|Net increase in deposits                                                              |  |                                      | 48,832  |      |   | 27,731  |  
|Net decrease in borrowings                                                            |  |                                      | (20,952 | )    |   | (23,522 | )
|Dividends on common stock                                                             |  |                                      | (923    | )    |   | (926    | )
|Dividends on preferred stock                                                          |  |                                      | (78     | )    |   |        |  
|Purchases of treasury common stock                                                    |  |                                      |        |      |   | (270    | )
|Sales of treasury common stock                                                        |  |                                      | 32      |      |   | 28      |  
|Proceeds from issuance of preferred stock
 and common stock warrants, net of expenses |  |                                      | 25,020  |      |   |        |  
|                                                                                      |  |                                      |         |      |   |         |  
|Net cash provided by financing
activities                                             |  |                                      | 51,931  |      |   | 3,041   |  
|                                                                                      |  |                                      |         |      |   |         |  
|Increase (decrease) in cash and cash equivalents                                      |  |                                      | 47,607  |      |   | (2,174  | )
|Cash and cash equivalents at beginning of period                                      |  |                                      | 20,261  |      |   | 27,604  |  
|                                                                                      |  |                                      |         |      |   |         |  
|Cash and cash equivalents at March 31                                                 |  | $                                    | 67,868  |      | $ | 25,430  |  
|                                                                                      |  |                                      |         |      |   |         |  
|                                                                                     
|Supplemental
 disclosures of cash flow information:                                   |  |                                      |         |      |   |         |  
|Cash paid during the period for:                                                      |  |                                      |         |      |   |         |  
|Interest                                                                              |  | $                                    | 5,774   |      | $ | 7,596   |  
|Income taxes                                                                          |  | $                                    | 4       |      | $ | 620     |  
|                                                                                      |  |                                      |         |      |   |         |  
|Supplemental
 disclosures of non-cash flow activities:                                |  |                                      |         |      |   |         |  
|Loans transferred to other real estate
 owned                                         |  | $                                    | 683     |      | $ | 42      |  

See accompanying notes to unaudited
consolidated financial statements

8

---



Schedule 5

PRINCETON NATIONAL BANCORP, INC. AND
SUBSIDIARYNotes to Consolidated Financial Statements 
(Unaudited)

The
accompanying unaudited condensed consolidated financial statements reflect all
adjustments, which, in the opinion of management, are necessary for a fair
presentation of the results of the interim periods ended March 31, 2009 and
2008, and all such adjustments are of a normal recurring nature. The 2008 year-end consolidated balance sheet
data was derived from audited financial statements, but do not include all
disclosures required by generally accepted accounting principles.

The
unaudited consolidated financial statements have been prepared in accordance with
the instructions to Form 10-Q and do not include all of the information
required by accounting principles generally accepted in the United States of
America for complete financial statements and related footnote disclosures. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered for a
fair presentation of the results for the interim period have been
included. For further information,
refer to the consolidated financial statements and notes included in the
Registrants 2008 Annual Report on Form 10-K.
Results of operations for interim periods are not necessarily indicative
of the results that may be expected for the year. Certain amounts in the 2008 consolidated financial statements
have been reclassified to conform to the 2009 presentation.

(1) CAPITAL PURCHASE PROGRAM

On
January 23, 2009, the Corporation received $25,083 of equity capital by issuing
to the United States Department of Treasury 25,083 shares of the Corporations
5.00% Series B Fixed Rate Cumulative Perpetual Preferred Stock, no par value,
with a liquidation preference of $1,000 per share and a ten-year warrant to
purchase up to 155,025 shares of the Corporations common stock, par value
$0.01 per share, at an exercise price of $24.27 per share. The proceeds received were allocated to the
preferred stock and common stock warrants based on their relative fair
values. The resulting discount on the preferred
stock is amortized against retained earnings and is reflected in the Corporations
consolidated statement of income as Preferred shares dividends, resulting in
additional dilution to the Corporations earnings per common share. The warrants are immediately exercisable, in
whole or in part, over a term of 10 years.
The warrants were included in the Corporations diluted average common
shares outstanding (subject to anti-dilution).
Both the preferred securities and warrants were accounted for as
additions to the Corporations regulatory Tier 1 and total capital.

The
Series B Preferred stock is not mandatorily redeemable and will pay cumulative
dividends at a rate of 5% per year for the first five years and 9% per year
thereafter. Any redemption requires
Federal Reserve approval. The Series B
Perpetual Preferred stock ranks senior to the Corporations existing authorized
Series A Junior Participating Preferred stock.

9

---



A
company that participates must adopt certain standards for executive
compensation, including (a) prohibiting golden parachute payments as defined
in the Emergency Economic Stabilization Act of 2008 (EESA) to senior Executive
Officers; (b) requiring recovery of any compensation paid to senior Executive Officers based on criteria that is later proven to be materially inaccurate;
(c) prohibiting incentive compensation that encourages unnecessary and excessive risks that threaten the value of the
financial institution; and (d) accept restrictions on the payment of dividends
and the repurchase of common stock.

(2) EARNINGS PER SHARE CALCULATION

The
following table sets forth the computation of basic and diluted earnings per
share for the periods indicated (in thousands, except share data):

|                                                                     |  |                               |           |      |   |           | 
|-------------------------------------------------------------------- |  | ----------------------------- | --------- | ---- | - | --------- | 
|                                                                     |  | Three Months Ended
 March 31, |          
|                                                                     |  | 2009                          |           | 2008 |  
|Numerator:                                                           |  |                               |           |      |   |           | 
|Net
 income available to common stockholders                         |  | $                             | 914       |      | $ | 2,090     | 
|                                                                     |  |                               |           |      |   |           | 
|Denominator:                                                         |  |                               |           |      |   |           | 
|Basic earnings per share-weighted average common shares              |  |                               | 3,298,064 |      |   | 3,304,063 | 
|                                                                     |  |                               |           |      |   |           | 
|Effect of dilutive securities-stock options                          |  |                               | 661       |      |   | 5,844     | 
|                                                                     |  |                               |           |      |   |           | 
|Diluted
 earnings per share-adjusted
 weighted average common shares |  |                               | 3,298,725 |      |   | 3,309,907 | 
|                                                                     |  |                               |           |      |   |           | 
|Net income per share
 available to common stockholders:              |  |                               |           |      |   |           | 
|                                                                     |  |                               |           |      |   |           | 
|Basic                                                                |  | $                             | 0.28      |      | $ | 0.63      | 
|Diluted                                                              |  | $                             | 0.28      |      | $ | 0.63      | 

The
following shares were not considered in computing diluted earnings per share
for the three-month periods ended March 31, 2009 and 2008 because they were
anti-dilutive:

|                                                                                |  |                               |         |      |  |         | 
|------------------------------------------------------------------------------- |  | ----------------------------- | ------- | ---- |  | ------- | 
|                                                                                |  | Three Months Ended
 March 31, |        
|                                                                                |  | 2009                          |         | 2008 | 
|Stock
 options to purchase shares of common stock                               |  |                               | 448,061 |      |  | 279,816 | 
|                                                                                |  |                               |         |      |  |         | 
|Average
 dilutive potential common shares associated with common stock warrants |  |                               | 155,025 |      |  |        | 

(3) GOODWILL
AND INTANGIBLE ASSETS

The
balance of goodwill, net of accumulated amortization, totaled $24,521,000 at
March 31, 2009 and December 31, 2008.
The balance of intangible assets, net of accumulated amortization,
totaled $3,991,000 and $4,207,000 at March 31, 2009 and December 31, 2008,
respectively.

10

---



The
Corporation had a goodwill impairment study performed as of March 31, 2009 and
December 31, 2008. If the implied fair
value of goodwill is lower than its carrying amount, goodwill impairment is indicated and
goodwill is written down to its implied fair value. Subsequent increases in
goodwill value are not recognized in the financial statements. The goodwill was
not deemed impaired as of March 31, 2009 or December 31, 2008.

The
following table summarizes the Corporations intangible assets, which are
subject to amortization, as of March 31, 2009 and December 31, 2008:

|                        |  |                        |       |                           |   |                        |   |                           |       |  |   |        |  
|----------------------- |  | ---------------------- | ----- | ------------------------- | - | ---------------------- | - | ------------------------- | ----- |  | - | ------ | -
|(in thousands)          |  |                        |       |                           |   |                        |   |                           |       |  |   |        |  
|                        |  |                        |       |                           |   |                        |   |                           |       |  |   |        |  
|                        |  | March 31, 2009         |       | December 31, 2008         |  
|                        |  | Gross Carrying
 Amount |       | Accumulated
 Amortization |   | Gross Carrying
 Amount |   | Accumulated
 Amortization |      
|                        |  |                        |       |                           |   |                        |   |                           |       |  |   |        |  
|Core deposit intangible |  | $                      | 9,004 |                           | $ | (5,081                 | ) | $                         | 9,004 |  | $ | (4,869 | )
|Other intangible assets |  |                        | 234   |                           |   | (166                   | ) |                           | 234   |  |   | (162   | )
|Total                   |  | $                      | 9,238 |                           | $ | (5,247                 | ) | $                         | 9,238 |  | $ | (5,031 | )

Amortization
expense of all intangible assets totaled $208,000 for both of the three months
ended March 31, 2009 and 2008, respectively. The amortization expense of these
intangible assets will be approximately $624,000 for the remaining three
quarters in 2009.

(4) ORIGINATED MORTGAGE SERVICING RIGHTS

The
Corporation has originated mortgage servicing rights which are included in
other assets on the consolidated balance sheets. Mortgage servicing rights are
amortized in proportion to, and over the period of, estimated net servicing
income on a basis similar to the interest method using an accelerated
amortization method and are subject to periodic impairment testing. Changes in
the carrying value of capitalized mortgage servicing rights are summarized as
follows:

|                                 |  |   |       |  
|-------------------------------- |  | - | ----- | -
|(in thousands)                   |  |   |       |  
|                                 |  |   |       |  
|Balance, January 1, 2009         |  | $ | 2,936 |  
|Servicing rights capitalized     |  |   | 328   |  
|Amortization of servicing rights |  |   | (144  | )
|Impairment of servicing rights   |  |   | (556  | )
|Balance, March 31, 2009          |  | $ | 2,564 |  

Activity
in the valuation allowance for mortgage servicing rights was as follows:

|                         |  |   |     | 
|------------------------ |  | - | --- | 
|(in thousands)           |  |   |     | 
|                         |  |   |     | 
|Balance, January 1, 2009 |  | $ |    | 
|Additions                |  |   | 556 | 
|Reductions               |  |   |    | 
|Direct write-downs       |  |   |    | 
|Balance, March 31, 2009  |  | $ | 556 | 

11

---



The
Corporation services loans for others with unpaid principal balances at March
31, 2009 and December 31, 2008 of approximately $320,831,000, and $304,551,000,
respectively.

The
following table shows the future estimated amortization expense for mortgage
servicing rights based on existing balances as of March 31, 2009. The
Corporations actual amortization expense in any given period may be significantly
different from the estimated amounts displayed depending on the amount of
additional mortgage servicing rights, changes in mortgage interest rates,
estimated prepayment speeds, and market conditions.

Estimated Amortization Expense:

|                                             |  |                       |       | 
|-------------------------------------------- |  | --------------------- | ----- | 
|                                             |  | Amount (in thousands) |      
|For the nine months ended
 December 31, 2009 |  | $                     | 211   | 
|For the year ended
 December 31, 2010        |  |                       | 283   | 
|For the year ended
 December 31, 2011        |  |                       | 264   | 
|For the year ended
 December 31, 2012        |  |                       | 247   | 
|For the year ended
 December 31, 2013        |  |                       | 232   | 
|For the year ended
 December 31, 2014        |  |                       | 217   | 
|Thereafter                                   |  |                       | 1,110 | 

(5) OTHER COMPREHENSIVE INCOME (LOSS)

Other
comprehensive income (loss) components and related taxes for the three months
ended March 31, 2009 and 2008 were as follows:

|                                                                         |  |      |      |      |   |       |  
|------------------------------------------------------------------------ |  | ---- | ---- | ---- | - | ----- | -
|(in thousands)                                                           |  |      |      |      |   |       |  
|                                                                         |  |      |      |      |   |       |  
|                                                                         |  | 2009 |      | 2008 |  
|                                                                         |  |      |      |      |   |       |  
|Net unrealized gains on securities available-for-sale                    |  | $    | 600  |      | $ | 2,280 |  
|Less: Reclassification adjustment for realized gains included in
 income |  |      | (187 | )    |   | (276  | )
|                                                                         |  |      | 413  |      |   | 2,004 |  
|                                                                         |  |      |      |      |   |       |  
|Amortization of transition obligation of post retirement health
care     |  |      | 0    |      |   | 4     |  
|                                                                         |  |      |      |      |   |       |  
|Other comprehensive income, before tax effect                            |  |      | 413  |      |   | 2,008 |  
|                                                                         |  |      |      |      |   |       |  
|Less: Tax expense                                                        |  |      | 160  |      |   | 778   |  
|                                                                         |  |      |      |      |   |       |  
|Other comprehensive income                                               |  | $    | 253  |      | $ | 1,230 |  

12

---



The components of
accumulated other comprehensive loss, included in stockholders equity at March
31, 2009 and 2008 are as follows:

|                                                      |  |      |       |      |   |       |  
|----------------------------------------------------- |  | ---- | ----- | ---- | - | ----- | -
|                                                      |  | 2009 |       | 2008 |  
|                                                      |  |      |       |      |   |       |  
|Net unrealized gain on
 securities available-for-sale |  | $    | 3,232 |      | $ | 3,121 |  
|Net unrealized benefit
 obligations                   |  |      | (530  | )    |   | (552  | )
|                                                      |  |      | 2,702 |      |   | 2,569 |  
|                                                      |  |      |       |      |   |       |  
|Less: Tax effect                                      |  |      | 1,047 |      |   | 995   |  
|                                                      |  |      |       |      |   |       |  
|Net of-tax amount                                    |  | $    | 1,655 |      | $ | 1,574 |  
|                                                      |  |      |       |      |   |       |  

(6) FEDERAL HOME LOAN BANK STOCK

The
Corporation has Federal Home Loan Bank stock totaling $2,373,000 at March 31,
2009 and December 31, 2008. During the third quarter of 2007, the Federal Home
Loan Bank of Chicago received a Cease and Desist Order from their regulator,
the Federal Housing Finance Board. The Federal Home Loan Bank will continue to
provide liquidity and funding through advances, however, the order prohibits
capital stock repurchases and redemptions until a time to be determined by the
Federal Housing Finance Board and requires their approval for dividends. With
regard to dividends, the Federal Home Loan Bank will continue to assess its
dividend capacity each quarter and make appropriate request for approval. There
were no dividends paid by the Federal Home Loan Bank of Chicago during the
first three months of 2009 or during 2008. Management performed an analysis and
deemed the investment in Federal Home Loan Bank stock was not other than
temporarily impaired as of March 31, 2009 or December 31, 2008.

(7) FAIR VALUE OF ASSETS AND LIABILITIES

Effective
January 1, 2008, the Corporation adopted Statement of Financial Accounting
Standards No. 157 (FAS 157), Fair Value Measurements. FAS 157 defines fair
value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements. FAS 157 has been applied prospectively as of the
beginning of the period.

FAS 157
defines the fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. FAS 157 also establishes a fair value
hierarchy which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value.

In
accordance with FAS 157, the Corporation groups its financial assets and
financial liabilities measured at fair value in three levels, based on the
markets in which the assets and liabilities are traded and the reliability of
the assumptions used to determine fair value. These levels are:

| |         |                                                                                                                                                                                                                                                   
| | ------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Level 1 | Valuations for assets and liabilities traded in active exchange
 markets, such as the New York Stock Exchange. Valuations are obtained from
 readily available pricing sources for market transactions involving identical
 assets or liabilities.

13

---



| |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Level 2 | Valuations for assets and liabilities traded in less active dealer or
 broker markets. Valuations are obtained from third party pricing services for
 identical or comparable assets or liabilities which use observable inputs
 other than Level 1 prices, such as quoted prices for similar assets or
 liabilities; quoted prices in markets that are not active; or other inputs
 that are observable or can be corroborated by observable market data for
 substantially the full term of the assets and liabilities.
| |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Level 3 | Unobservable inputs that are supported by little or no market
 activity and that are significant to the fair value of the assets or
 liabilities.                                                                                                                                                                                                                                                                                                                                                                        

Following
is a description of the valuation methodologies used for instruments measured
at fair value on a recurring basis and recognized in the accompanying balance
sheet.

Available-for-Sale Securities

The fair
value of available-for-sale securities are determined by various valuation
methodologies. Where quoted market prices are available in an active market,
securities are classified within Level 1. The Corporation has no securities
classified within Level 1. If quoted market prices are not available, then fair
values are estimated by using pricing models or quoted prices of securities
with similar characteristics. Level 2 securities include U.S. Treasury
securities, Obligations of U.S. government corporations and agencies,
Obligations of states and political subdivisions, mortgage-backed securities,
collateralized mortgage obligations and corporate bonds. In certain cases where
Level 1 or Level 2 inputs are not available, securities are classified within
Level 3 of the hierarchy. The Corporation has no securities classified within
Level 3.

The
following table presents the Corporations assets that are measured at fair
value on a recurring basis and the level within the FAS 157 hierarchy in which
the fair value measurements fall as of March 31, 2009 and December 31, 2008 (in
thousands):

|                               |  |            |         |                                                                   |                               |                                                 |  |                                              |         |  |   |   | 
|------------------------------ |  | ---------- | ------- | ----------------------------------------------------------------- | ----------------------------- | ----------------------------------------------- |  | -------------------------------------------- | ------- |  | - | - | 
|March 31, 2009                 |  |            |         |                                                                   |                               |                                                 |  |                                              |         |  |   |   | 
|                               |  |            |         |                                                                   | Fair Value Measurements Using |                                                
|                               |  | Fair Value |         | Quoted Prices in
 Active Markets for
 Identical Assets
 (Level 1) |                               | Significant Other
 Observable Inputs
 (Level 2) |  | Significant
 Unobservable
 Inputs
 (Level 3) |        
|                               |  |            |         |                                                                   |                               |                                                 |  |                                              |         |  |   |   | 
|                               |  |            |         |                                                                   |                               |                                                 |  |                                              |         |  |   |   | 
|Available-for-sale
 securities |  | $          | 259,397 |                                                                   | $                             | 0                                               |  | $                                            | 259,397 |  | $ | 0 | 
|                               |  |            |         |                                                                   |                               |                                                 |  |                                              |         |  |   |   | 
|December 31, 2008              |  |            |         |                                                                   |                               |                                                 |  |                                              |         |  |   |   | 
|                               |  |            |         |                                                                   |                               |                                                 |  |                                              |         |  |   |   | 
|                               |  |            |         |                                                                   | Fair Value Measurements Using |                                                
|                               |  | Fair Value |         | Quoted Prices in
 Active Markets for
 Identical Assets
 (Level 1) |                               | Significant Other
 Observable Inputs
 (Level 2) |  | Significant
 Unobservable
 Inputs
 (Level 3) |        
|                               |  |            |         |                                                                   |                               |                                                 |  |                                              |         |  |   |   | 
|Available-for-sale
 securities |  | $          | 236,883 |                                                                   | $                             | 0                                               |  | $                                            | 236,883 |  | $ | 0 | 

14

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Following
is a description of the valuation methodologies used for assets and liabilities
measured at fair value on a non-recurring basis and recognized in the
accompanying balance sheets, as well as the general classification of such
assets and liabilities pursuant to the valuation hierarchy.

Impaired Loans

Loans
for which it is probable that the Corporation will not collect all principal
and interest due according to contractual terms are measured for impairment in
accordance with the provisions of Financial Accounting Standard No. 114 (FAS
114), Accounting by Creditors for
Impairment of a Loan. Allowable methods for estimating fair value
include using the fair value of the collateral for collateral dependent loans
or, where a loan is determined not to be collateral dependent, using the
discounted cash flow method.

If
the impaired loan is identified as collateral dependent, then the fair value
method of measuring the amount of impairment is utilized. This method requires
obtaining a current independent appraisal of the collateral and applying a
discount factor to the value. If the impaired loan is determined not to be
collateral dependent, then the discounted cash flow method is used. This method
requires the impaired loan to be recorded at the present value of expected
future cash flows discounted at the loans effective interest rate. The
effective interest rate of a loan is the contractual interest rate adjusted for
any net deferred loan fees or costs, premiums or discount existing at
origination or acquisition of the loan. Impaired loans are classified within
Level 3 of the fair value hierarchy.

Mortgage Servicing Rights

The
fair value used to determine the valuation allowance is estimated using
discounted cash flow models. Due to the nature of the valuation inputs,
mortgage servicing rights are classified within Level 3 of the hierarchy.

The
following table presents the fair value measurement of assets and liabilities
measured at fair value on a nonrecurring basis and the level within the FAS 157
fair value hierarchy in which the fair value measurements fall at March 31,
2009 and December 31, 2008.

|                          |  |            |        |                                                                   |                               |                                                 |  |                                              |   |  |   |        | 
|------------------------- |  | ---------- | ------ | ----------------------------------------------------------------- | ----------------------------- | ----------------------------------------------- |  | -------------------------------------------- | - |  | - | ------ | 
|March 31, 2009            |  |            |        |                                                                   |                               |                                                 |  |                                              |   |  |   |        | 
|                          |  |            |        |                                                                   |                               |                                                 |  |                                              |   |  |   |        | 
|                          |  |            |        |                                                                   | Fair Value Measurements Using |                                                
|                          |  | Fair Value |        | Quoted Prices in
 Active Markets for
 Identical Assets
 (Level 1) |                               | Significant Other
 Observable Inputs
 (Level 2) |  | Significant
 Unobservable
 Inputs
 (Level 3) |  
|                          |  |            |        |                                                                   |                               |                                                 |  |                                              |   |  |   |        | 
|Impaired loans            |  | $          | 17,170 |                                                                   |                               | 0                                               |  |                                              | 0 |  | $ | 17,170 | 
|Mortgage servicing rights |  |            | 2,564  |                                                                   |                               | 0                                               |  |                                              | 0 |  |   | 2,564  | 

15

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December 31, 2008

|                |  |            |       |                                                                   |                               |                                                 |  |                                              |   |  |   |       | 
|--------------- |  | ---------- | ----- | ----------------------------------------------------------------- | ----------------------------- | ----------------------------------------------- |  | -------------------------------------------- | - |  | - | ----- | 
|                |  |            |       |                                                                   | Fair Value Measurements Using |                                                
|                |  | Fair Value |       | Quoted Prices in
 Active Markets for
 Identical Assets
 (Level 1) |                               | Significant Other
 Observable Inputs
 (Level 2) |  | Significant
 Unobservable
 Inputs
 (Level 3) |  
|Impaired
 loans |  | $          | 2,494 |                                                                   |                               | 0                                               |  |                                              | 0 |  | $ | 2,494 | 

(8) INCOME TAXES

A
reconciliation of income tax expense at 34 percent of pre-tax income to the
Corporations actual tax expense (benefit) for the three-month periods ended
March 31 is shown below:

|                                                     |  |      |      |      |   |      |  
|---------------------------------------------------- |  | ---- | ---- | ---- | - | ---- | -
|                                                     |  | 2009 |      | 2008 |  
|Computed
 expected tax expense                     |  | $    | 358  |      | $ | 911  |  
|                                                     |  |      |      |      |   |      |  
|Increase
 (decrease) in income taxes resulting from: |  |      |      |      |   |      |  
|Tax-exempt income                                    |  |      | (379 | )    |   | (338 | )
|State income taxes, net of federal tax
 benefit      |  |      | 41   |      |   | 180  |  
|Bank-owned life insurance income                     |  |      | (86  | )    |   | (76  | )
|Other, net                                           |  |      | (38  | )    |   | (88  | )
|                                                     |  | $    | (104 | )    | $ | 589  |  

(9) IMPACT OF NEW ACCOUNTING STANDARDS

In
December 2007, the FASB issued SFAS No. 141R (FAS 141R), Business
Combinations, which revises FAS 141 and changes multiple aspects of the
accounting for business combinations. Under the guidance in FAS 141R, the
acquisition method must be used, which requires the acquirer to recognize most
identifiable assets acquired, liabilities assumed, and non-controlling
interests in the acquiree at their full fair value on the acquisition date.
Goodwill is to be recognized as the excess of the consideration transferred
plus the fair value of the non-controlling interest over the fair values of the
identifiable net assets acquired. Subsequent changes in the fair value of
contingent consideration classified as a liability are to be recognized in
earnings, while contingent consideration classified as equity is not to be re-measured.
Costs such as transaction costs are to be excluded from acquisition accounting,
generally leading to recognizing expense and additionally, restructuring costs
that do not meet certain criteria at acquisition date are to be subsequently
recognized as post-acquisition costs. FAS 141R is effective for business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The
implementation of FAS 141R did not have a material impact on the Corporations
financial position or results of operations.

16

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In
December 2007, the FASB issued Statement of Financial Accounting No. 160 (FAS
160), Noncontrolling Interests in
Consolidated Financial Statements  an amendment of ARB No. 51. The
Statement requires that a noncontrolling interest in a subsidiary be reported
separately within equity and the amount of consolidated net income specifically
attributable to the noncontrolling interest be identified in the consolidated
financial statements. It also calls for consistency in the manner of reporting
changes in the parents
ownership interest and requires fair value measurement of any noncontrolling
equity investment retained in deconsolidation. FAS 160 became effective for
fiscal years beginning after December 15, 2008. The application of FAS 160 did
not have a material impact on the Corporations consolidated financial
statements.

In
March 2008, the FASB issued SFAS No. 161 (FAS 161), Disclosures About
Derivative Instruments and Hedging Activities  an amendment of FAS 133. FAS
161 requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of gains and
losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. FAS 161 is effective for fiscal
years beginning after November 15, 2008. The implementation of FAS 161 did not
have a material impact on its consolidated financial statements.

In
May 2008, the FASB issued Statement of Financial Accounting No. 162 (FAS
162), The Hierarchy of Generally Accepted
Accounting Principles. This Statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy). This Statement became effective on
November 15, 2008. The application of FAS 162 did not have a material impact on
the Corporations consolidated financial statements.

In
January 2009, the FASB issued FSP E 99-20-1, Amendments to the Impairment and
Interest Income Measurement Guidance of EITF Issue No. 99-20. FSP EITF 99-20-I
amends the impairment guidance in EITF Issue No. 99-20 in order to achieve more
consistent determination of whether an other-than- temporary impairment (OTTI)
has occurred. Prior to the FSP, the impairment model in EITF 99-20 was
different from FASB Statement No. 115, Accounting for Certain Investments in
Debt and Equity Securities. This FSP amended EITF99-20 to more closely align
the OTTI guidance therein to the guidance in Statement No. 115. Retrospective
application to a prior interim or annual period is prohibited. The Corporation
does not expect the implementation of this FSP to have a material impact on its
consolidated financial statements.

In
April 2009, the FASB issued three amendments to the fair value measurement,
disclosure and other-than-temporary impairment standards:

| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | FAS 157-4, Determining Fair Value When the Volume and Level of
 Activity for the Asset or Liability Have Significantly Decreased and Identifying
 Transactions that are Not Orderly.
| |   |                                                                                                                                                                                       
| |  | FAS 115-2
 and FAS 124-2, Recognition and
 Presentation of Other-Than-Temporary Impairments.                                                                                        
| |   |                                                                                                                                                                                       
| |  | FAS 107 and
 APB 28-1, Interim Disclosures about Fair
 Value of Financial Instruments.                                                                                              

FASB
Statement of Financial Accounting No. 157 (FAS 157), Fair value Measurements, defines fair
value as the price that would be received to sell the asset or transfer the
liability in an orderly transaction (that is, not a forced liquidation or
distressed sale) between market participants at the measurement date under
current market conditions. FAS 157-4 provided additional guidance on
identifying circumstances when a transaction may not be considered orderly.

17

---



FAS
157-4 provides a list of factors that a reporting entity should evaluate to
determine whether there has been a significant decrease in the volume and level
of activity for the asset or liability in relation to normal market activity
for the asset or liability. When the reporting entity concludes there has been
a significant decrease in the volume and level of activity for the asset or
liability, further analysis of the information from that market is needed and
significant adjustments to the related prices may be necessary to estimate fair
value in accordance with FAS 157.

FAS
157-4 clarifies that when there has been a significant decrease in the volume
and level of activity for the asset or liability, some transactions may not be
orderly. In those situations, the entity must evaluate the weight of evidence
to determine whether the transaction is orderly. It also provides a list of
circumstances that may indicate that a transaction is not orderly. A
transaction price that is not associated with an orderly transaction is given
little, if any, weight when estimating fair value.

FAS
115-2 and FAS 124-2 clarifies the interaction of the factors that should be
considered when determining whether a debt security is otherthan-temporarily
impaired. For debt securities, management must assess whether (a) it has the
intent to sell the security and (b) it is more likely than not that it will be
required to sell the security prior to its anticipated recovery. These steps
are done before assessing whether the entity will recover the cost basis of the
investment. Previously, this assessment required management to assert it has
both the intent and the ability to hold a security for a period of time
sufficient to allow for anticipated recovery in fair value to avoid recognizing
an other-than-temporary impairment. This change does not affect the need to
forecast recovery of the value of the security through either cash flows or
market price.

In
instances when a determination is made that an other-than-temporary impairment
exists but the investor does not intend to sell the debt security and it is not
more likely than not that it will be required to sell the debt security prior
to its anticipated recovery, FAS 115-2 and FAS 124-2 changes the presentation
and amount of the other-than-temporary impairment recognized in the income
statement. The other-than-temporary impairment is separated into (a) the amount
of the total other-than-temporary impairment related to a decrease in cash
flows expected to be collected from the debt security (the credit loss) and (b)
the amount of the total other-than-temporary impairment related to all other
factors. The amount of the total other-than-temporary impairment related to the
credit loss is recognized in earnings. The amount of the total other-than-temporary
impairment related to all other factors is recognized in other comprehensive
income.

FAS
107-1 and APB 28-1 amends FASB Statement No. 107 (FAS 107), Disclosures about Fair Value of Financial
Instruments,to require disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well
as in annual financial statements. FAS 107-1 also amends APB Opinion No. 28, Interim Financial Reporting, to
require those disclosures in summarized financial information at interim reporting
periods.

All
three FASB Staff Positions discussed herein include substantial additional
disclosure requirements. The effective date for these new standards is the
same: interim and annual reporting periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009. However,
early adoption is allowed only if certain FASB Staff Positions are early
adopted together. The Corporation will adopt the new standards as of June 30,
2009, and does not expect the adoption to have a material impact on its
consolidated financial statements.

18

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Schedule 6

PRINCETON NATIONAL BANCORP, INC. AND
SUBSIDIARY
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the three months ended March 31, 2009 and 2008

The
following discussion provides information about Princeton National Bancorp,
Inc.s (PNBC or the Corporation) financial condition and results of
operations for the three month periods ended March 31, 2009 and 2008. This
discussion should be read in conjunction with the attached consolidated
financial statements and notes thereto. This report contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended (the Exchange Act), such as discussions of the Corporations
pricing and fee trends, credit quality and outlook, liquidity, new business
results, expansion plans, anticipated expenses and planned schedules. The
Corporation intends such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and is including this statement for
purposes of these safe harbor provisions. Forward-looking statements, which are
based on certain assumptions and describe future plans, strategies and
expectations of the Corporation, are identified by use of the words believe,
expect, intend, anticipate, estimate, project, or similar
expressions. Actual results could differ materially from the results indicated
by these statements because the realization of those results is subject to many
risks and uncertainties including: the effect of the current severe disruption
in financial markets and the United States government programs introduced to
restore stability and liquidity, changes in interest rates, general economic
conditions and the weakening state of the United States economy,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Corporations market area and accounting principles, policies and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. Further information concerning the Corporation and its business,
including a discussion of these and additional factors that could materially
affect the Corporations financial results, is included in the Corporations
2008 Annual Report on Form 10-K under the headings Item 1. Business and Item
1A. Risk Factors.

CRITICAL ACCOUNTING POLICIES AND USE OF
SIGNIFICANT ESTIMATES

The
Corporation has established various accounting policies that govern the
application of U.S. generally accepted accounting principles in the preparation
of the Corporations financial statements. The significant accounting policies
of the Corporation are described in the footnotes to the consolidated financial
statements.. Certain accounting policies involve significant judgments and
assumptions by management that have a material impact on the carrying value of
certain assets and liabilities; management considers such accounting policies
to be critical accounting policies. The judgments and assumptions used by
management are based on historical experience and other factors, which are
believed to be reasonable under the circumstances. Because of the nature of the
judgments and assumptions made by management, actual results could differ from
these judgments and assumptions, which could
have a material impact on the carrying values of assets and liabilities and the
results of operations of the Corporation.

19

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Allowance for Loan Losses

The
Corporation believes the allowance for loan losses is the critical accounting
policy that requires the most significant judgments and assumptions used in the
preparation of its consolidated financial statements. We determine probable
incurred losses inherent in our loan portfolio and establish an allowance for
those losses by considering factors including historical loss rates, expected
cash flows and estimated collateral values. In assessing these factors, we use
organizational history and experience with credit decisions and related
outcomes. The allowance for loan losses represents our best estimate of losses
inherent in the existing loan portfolio. The allowance for loan losses is
increased by the provision for loan losses charged to expense and reduced by
loans charged off, net of recoveries. We evaluate our allowance for loan losses
quarterly. If our underlying assumptions later prove to be inaccurate based on
subsequent loss evaluations, the allowance for loan losses is adjusted.

We
estimate the appropriate level of allowance for loan losses by separately
evaluating impaired and non-impaired loans. A specific allowance is assigned to
an impaired loan when expected cash flows or collateral do not justify the
carrying amount of the loan. The methodology used to assign an allowance to a
non-impaired loan is more subjective. Generally, the allowance assigned to
non-impaired loans is determined by applying historical loss rates to existing
loans with similar risk characteristics, adjusted for qualitative factors including
the volume and severity of identified classified loans, changes in economic
conditions, changes in credit policies or underwriting standards, and changes
in the level of credit risk associated with specific industries and markets.
Because the economic and business climate in any given industry or market, and
its impact on any given borrower, can change rapidly, the risk profile of the
loan portfolio is continually assessed and adjusted when appropriate.
Notwithstanding these procedures, there still exists the possibility that our
assessment could prove to be significantly incorrect and that an immediate
adjustment to the allowance for loan losses would be required.

Other Real Estate Owned

Other
real estate owned acquired through loan foreclosure is initially recorded at
fair value less costs to sell when acquired, establishing a new cost basis. The
adjustment at the time of foreclosure is recorded through the allowance for
loan losses. Due to the subjective nature of establishing the fair value when
the asset is acquired, the actual fair value of the other real estate owned or
foreclosed asset could differ from the original estimate. If it is determined
that fair value declines subsequent to foreclosure, a valuation allowance is
recorded through non-interest expense. Operating costs associated with the
assets after acquisition are also recorded as non-interest expense. Gains and
losses on the disposition of other real estate owned and foreclosed assets are
netted and posted to other non-interest expense.

Deferred Income Tax Assets/Liabilities

Our
net deferred income tax asset arises from differences in the dates that items
of income and expense enter into our reported income and taxable income.
Deferred tax assets and liabilities are established for these items as they
arise. From an accounting standpoint, deferred tax assets are reviewed to
determine if they are realizable based on the historical level of our taxable
income, estimates of our future taxable income and the reversals of deferred
tax liabilities. In most cases, the realization of the deferred tax asset is
based on our future profitability. If we were to experience net operating
losses for tax purposes in a future period, the realization of our deferred tax
assets would be evaluated for a potential valuation reserve.

20

---



Additionally,
the Corporation reviews its uncertain tax positions annually under FASB
Interpretation 48, Accounting for Uncertainty in Income Taxes. An uncertain tax
position is recognized as a benefit only if it is more likely than not that
the tax position would be sustained in a tax examination, with a tax
examination being presumed to occur. The amount actually recognized is the
largest amount of tax benefit that is greater than 50% likely to be recognized
on examination. For tax positions not meeting the more likely than not test,
no tax benefit is recorded. A significant amount of judgment is applied to
determine both whether the tax position meets the more likely than not test
as well as to determine the largest amount of tax benefit that is greater than
50% likely to be recognized. Differences between the position taken by
management and that of taxing authorities could result in a reduction of a tax
benefit or increase to tax liability, which could adversely affect future
income tax expense.

Impairment of Goodwill and Intangible Assets

Core
deposit and customer relationships, which are intangible assets with a finite
life, are recorded on our balance sheets. These intangible assets were
capitalized as a result of past acquisitions and are being amortized over their
estimated useful lives of up to 15 years. Core deposit intangible assets, with
finite lives will be tested for impairment when changes in events or
circumstances indicate that its carrying amount may not be recoverable. Core
deposit intangible assets were tested for impairment during 2008 and 2007, as
part of the goodwill impairment test and no impairment was deemed necessary.

As
a result of our acquisition activity, goodwill, an intangible asset with an
indefinite life, was reflected on our balance sheet in prior periods. Goodwill
is evaluated for impairment annually, unless there are factors present that
indicate a potential impairment, in which case, the goodwill impairment test is
performed more frequently than annually. Accordingly, as the Corporations
stock price at March 31, 2009 decreased below book value, a goodwill impairment
test was performed and no impairment was deemed necessary (see Note 3 
Goodwill and Intangible Assets in the Notes to Consolidated Financial
Statements).

Mortgaging Service Rights (MSRs)

MSR
fair values are very sensitive to movements in interest rates as expected
future net servicing income depends on the projected outstanding principal
balances of the underlying loans, which can be greatly reduced by prepayments.
Prepayments usually increase when mortgage interest rates decline and decrease
when mortgage interest rates rise. For discussion regarding the impairment of
MSRs, see Note 4  Originated Mortgage Servicing Rights in the Notes to
Consolidated Financial Statements.

Fair Value Measurements

The
fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. The Corporation estimates the fair
value of a financial instrument using a variety of valuation methods. Where
financial instruments are actively traded and have quoted market prices, quoted
market prices are used for fair value. When the financial instruments are not
actively traded, other observable market inputs, such as quoted prices of
securities with similar characteristics, may be used, if available, to
determine fair value. When observable market prices do not exist, the
Corporation estimates fair value. The Corporations valuation methods consider
factors such as liquidity and concentration concerns. Other factors such as
model assumptions, market dislocations and unexpected correlations can affect
estimates of fair value. Imprecision in estimating these factors can impact the
amount of revenue or loss recorded.

21

---



FASB
Statement No. 157, Fair Value Measurements, establishes a framework for measuring
the fair value of financial instrument that considers the attributes specific
to particular assets or liabilities and establishes a
three-level hierarchy for determining fair value based on the transparency of
inputs to each valuation as of the fair value measurement date. The three
levels are defined as follows:

| |                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Level 1 -
 quoted prices (unadjusted) for identical assets or liabilities in active
 markets.                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                    
| | Level 2-
 inputs include quoted prices for similar assets and liabilities in active
 markets, quoted prices of identical or similar assets or liabilities in
 markets that are not active, and inputs that are observable for the asset or
 liability, either directly or indirectly, for substantially the full term of
 the financial instrument.
| |                                                                                                                                                                                                                                                                                                                                                    
| | Level 3 -
 inputs that are unobservable and significant to the fair value measurement.                                                                                                                                                                                                                                                             

At
the end of each quarter, the Corporation assesses the valuation hierarchy for
each asset or liability measured. From time to time, assets or liabilities may
be transferred within hierarchy levels due to changes in availability of
observable market inputs to measure fair value at the measurement date.
Transfers into or out of hierarchy levels are based upon the fair value at the
beginning of the reporting period. A more detailed description of the fair
values measured at each level of the fair value hierarchy can be found in Note
7- Fair Value of Assets and Liabilities in the Notes to Consolidated
Financial Statements.

RESULTS OF OPERATIONS

Net
income for the first quarter of 2009 was $1,156,000, or basic and diluted
earnings per common share of $0.28, as compared to net income of $2,090,000 in
the first quarter of 2008, or basic and diluted earnings per common share of
$0.63. This represents a decrease of $934,000 (44.7%) or $.35 per basic and
diluted common share. The lower net income figure is attributable to an increase
in the provision for loan losses and insurance assessments by the FDIC. The
annualized return on average assets and return on average equity decreased
accordingly to 0.40% and 5.14%, respectively, for the first quarter of 2009,
compared with 0.78% and 12.22% for the first quarter of 2008.

Net
interest income before the provision for loan losses was $8,079,000 for the
first quarter of 2009, compared to $7,454,000 for the first quarter of 2008 (an
increase of $625,000 or 8.4%). The net yield on interest-earning assets (on a
fully taxable equivalent basis) increased slightly to 3.40% in the first
quarter of 2009 from 3.39% in the first quarter of 2008. However, growth in the
balance sheet of $86.7 million in average interest-earning assets was the
primary cause for the increase in net interest income over the past twelve
months.

The
Corporations provision for loan loss expense recorded each quarter is
determined by managements evaluation of the risk characteristics of the loan
portfolio. As mentioned above, net charge-offs decreased during the first
quarter of 2009 to $371,000, compared to net charge-offs of $481,000 for the
first quarter of 2008. PNBC recorded a loan loss provision of $1,170,000 in the
first quarter of 2009 compared to a provision of $368,000 in the first quarter
of 2008. The allowance for loan losses is discussed more fully below.

22

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Non-interest
income totaled $2,795,000 for the first quarter of 2009, compared to $3,153,000
in the first quarter of 2008, a decrease of $358,000 (or 11.4%). The decrease
was primarily due to the impairment of mortgage servicing rights recorded
during the first quarter of 2009 of $556,000. This resulted in mortgage banking
income decreasing by a net figure of $347,000. The categories of service charges on deposits and trust and farm management fees also experienced
decreases of $116,000 (10.6%) and $162,000 (34.0%), respectively, due to a
decrease in overdraft fee income and lower fees from a decline in managed asset
values. Annualized non-interest income as a percentage of total average assets
decreased from 1.18% for the first three months of 2008, to 0.96% for the same
period in 2009.

Total
non-interest expense for the first quarter of 2009 was $8,652,000, an increase
of $1,092,000 (or 14.4%) from $7,560,000 in the first quarter of 2008. The
largest difference between the first quarters of 2009 and 2008 was an increase
in federal insurance assessments of $613,000, an increase of 729.8%. Most of
this increase is attributable to the increase in the assessment rate as well as
the expiration of credits from the FDIC in latter 2008. Additionally, the
category of other operating expense increased $224,000 (or 21.2%) due mostly to
an increase in loan administrative expenses. Annualized non-interest expense as
a percentage of total average assets increased to 2.96% for the first three
months of 2009, compared to 2.83% for the same period in 2008.

INCOME TAXES

The
Corporation recorded an income tax benefit of $104,000 for the first quarter of
2009, as compared to income tax expense of $589,000 for the first quarter of
2008. The effective tax rate was (9.9%) for the three-month period ended March
31, 2009 and 22.0% for the three-month period ended March 31, 2008. The income
tax benefit is due to a lower pre-tax income coupled with the effect of
tax-exempt investment interest income. For more information on the
Corporations income taxes see Note 8  Income Taxes in the Notes to
Consolidated Financial Statements.

FDIC

On
February 27, 2009, the FDIC adopted a final rule modifying the risk-based
assessment system and setting initial base assessment rates beginning April
1,2009, at 12 to 45 basis points and, due to extraordinary circumstances,
extended the period of the Restoration Plan to seven years. Also in March 2009,
the FDIC Issued final rules on changes to the risk-based assessment system. The
final rules both increase base assessment rates and incorporates additional
assessments for excess reliance on brokered CDs and FHLB advances. The new
rates would increase annual assessment rates from 5 to 7 basis points to 7 to
24 basis points. This new assessment takes effect April 1, 2009 and is payable
at the end of September 2009. The Corporation is assessing the effect the new
assessment rates will have on its consolidated financial statements.

Also on
February 27, 2009, the FDIC adopted an interim rule to impose a 20 basis point
emergency special assessment payable September 30. 2009 based on the second
quarter 2009 assessment base, to help shore up the Deposit Insurance Fund
(DIF). This assessment equates to a one-time cost of $200,000 per $100 million
in assessment base. The interim rule also allows the Board to impose possible
additional special assessments of up to 10 basis points thereafter to maintain
public confidence in the DIF. Should the proposal become final, the Corporation
estimates this assessment would have a material impact on its financial
statements of approximately $1.7 million.

23

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ANALYSIS OF FINANCIAL CONDITION

Total
assets at March 31, 2009 increased to $1,215,484,000 from $1,163,130,000 at
December 31, 2008 (an increase of $52.4 million or 4.5%). Total loan balances
decreased by $16.0 million during the three month period to $774.8 million due
to seasonal pay downs in the agricultural portfolio, along with the refinancing
of adjustable-rate residential real estate loans into fixed rate products which
are sold in the secondary market. Investment balances totaled $274,534,000 at
March 31, 2009, compared to $251,115,000 at December 31, 2008 (an increase of
$23.4 million or 9.3%), as excess liquidity is invested due to declining loan
demand. Total deposits increased to $1,010,964,000 at March 31, 2009 from
$962,132,000 at December 31, 2008 (an increase of $48.8 million or 5.1%).
Comparing categories of deposits at March 31, 2009 to December 31, 2008, time
deposits increased $39.4 million (or 7.2%), interest-bearing demand deposits
increased $9.4 million (or 3.8%), savings deposits increased $5.1 million (or
8.4%), and demand deposits decreased $5.1 million (or 4.6%). Borrowings,
consisting of customer repurchase agreements, federal funds purchased, notes
payable, treasury, tax, and loan (TT&L) deposits, and Federal Home Loan
Bank advances, decreased from $118,016,000 at December 31, 2008 to $97,066,000
at March 31, 2009 (a decrease of $20.9 million or 17.8%). The majority of this
decrease was due to the repayment of the note payable (balance of $16.05
million at December 31, 2008) with proceeds from the sale of preferred stock
under the Capital Purchase Program.

CAPITAL PURCHASE PROGRAM

On January
23, 2009, the Corporation received $25,083 of equity capital by issuing to the
United States Department of Treasury 25,083 shares of the Corporations 5.00%
Series B Fixed Rate Cumulative Perpetual Preferred Stock, no par value, with a
liquidation preference of $1,000 per share and a ten-year warrant to purchase
up to 155,025 shares of the Corporations common stock, par value $0.01 per
share, at an exercise price of $24.27 per share. The proceeds received were
allocated to the preferred stock and common stock warrants based on their
relative fair values. The resulting discount on the preferred stock is
amortized against retained earnings and is reflected in the Corporations
consolidated statement of income as Preferred shares dividends, resulting in
additional dilution to the Corporations earnings per common share. The
warrants are immediately exercisable, in whole or in part, over a term of 10
years. The warrants were included in the Corporations diluted average common
shares outstanding (subject to anti-dilution). Both the preferred securities
and warrants were accounted for as additions to the Corporations regulatory
Tier 1 and total capital.

The Series
B Preferred stock is not mandatorily redeemable and will pay cumulative
dividends at a rate of 5% per year for the first five years and 9% per year
thereafter. Any redemption requires Federal Reserve approval. The Series B
Perpetual Preferred stock ranks senior to the Corporations existing authorized Series A
Junior Participating Preferred stock.

A company
that participates must adopt certain standards for executive compensation,
including (a) prohibiting golden parachute payments as defined in the
Emergency Economic Stabilization Act of 2008 (EESA) to senior Executive
Officers; (b) requiring recovery of any compensation paid to senior Executive
Officers based on criteria that is later proven to be materially inaccurate;
(c) prohibiting incentive compensation that encourages unnecessary and
excessive risks that threaten the value of the financial institution; and (d)
accept restrictions on the payment of dividends and the repurchase of common
stock.

24

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ASSET QUALITY

For the
three months ended March 31, 2009, the subsidiary bank charged off $412,000 of
loans and had recoveries of $42,000, compared to charge-offs of $546,000 and
recoveries of $65,000 during the three months ended March 31, 2008. The
allowance for loan losses is based on factors that include the overall
composition of the loan portfolio, types of loans, underlying collateral, past
loss experience, loan delinquencies, substandard and doubtful credits, and such
other factors that, in managements reasonable judgment, warrant consideration.
The adequacy of the allowance is monitored monthly. At March 31, 2009, the
allowance was $5,864,000 which is 17.6% of non-performing loans and 0.76% of
total loans, compared with $5,064,000 which was 15.3% of non-performing loans
and 0.64% of total loans at December 31, 2008.

Non-performing
loans increased to $33,278,000 or 4.30% of net loans at March 31, 2009, as
compared to $33,038,000 or 4.18% of net loans at December 31, 2008. Approximately
60% of the non-performing loans is comprised of three larger credits, all of
which are development loans in the Corporations northern and eastern market
areas. No specific reserves had been established for these three relationships
as of March 31, 2009. All loans are individually evaluated and management
continues to maintain adequate reserves in the allowance for loan losses.

At March
31, 2009 non-accrual loans were $33,137,000 compared to $30,383,000 at December
31, 2008. Impaired loans totaled $17,170,000 at March 31, 2009 compared to
$3,540,000 at December 31, 2008. The total amount of loans ninety days or more
past due and still accruing interest at March 31, 2009 was $142,000 compared to
$2,655,000 at December 31, 2008. There was a specific loan loss reserve of
$1,983,000 established for impaired loans as of March 31, 2009 compared to a
specific loan loss reserve of $818,000 at December 31, 2008. PNBCs management
analyzes the allowance for loan losses monthly and believes the current level
of allowance is adequate to meet probable losses as of March 31, 2009.

CAPITAL RESOURCES

Federal
regulations require all financial institutions to evaluate capital adequacy by
the risk-based capital method, which makes capital requirements more sensitive
to the differences in the level of risk assets. At March 31, 2009, total
risk-based capital of PNBC was 11.53%, compared to 8.30% at December 31, 2008.
The Tier 1 capital ratio increased from 6.22% at December 31, 2008, to 7.99% at
March 31, 2009. Total stockholders equity to total assets at March 31, 2009
increased to 8.06% from 6.23% at December 31, 2008. The increase in these
ratios is due to the equity investment received from the U.S. Treasury in the
form of Preferred Stock as part of the Capital Purchase Program discussed
above.

LIQUIDITY

Liquidity
is measured by a financial institutions ability to raise funds through
deposits, borrowed funds, capital, or the sale of assets. Additional sources of
liquidity include cash flow from the repayment of loans and the maturity of
investment securities. Major uses of cash include the origination of loans and
purchase of investment securities. Cash flows provided by financing and
operating activities, offset by those used in investing activities, resulted in
a net increase in cash and cash equivalents of $47,607,000 from December 31,
2008 to March 31, 2009. This increase was primarily the result of the proceeds
received from the issuance of preferred stock, an increase in deposits and a
decrease in loans, offset by net purchases of investments and the pay off of the Corporations note
payable. For more detailed information, see PNBCs Consolidated Statements of
Cash Flows.

25

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FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET
RISK

The
Corporation generates agribusiness, commercial, mortgage and consumer loans to
customers located primarily in North Central Illinois. The Corporations loans
are generally secured by specific items of collateral including real property,
consumer assets and business assets. Although the Corporation has a diversified
loan portfolio, a substantial portion of its debtors ability to honor their
contracts is dependent upon economic conditions in the agricultural industry.

In the
normal course of business to meet the financing needs of its customers, the
subsidiary bank is party to financial instruments with off-balance sheet risk.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The contract amounts of those instruments reflect
the extent of involvement the subsidiary bank has in particular classes of
financial instruments.

The
subsidiary banks exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual notional amount
of those instruments. The subsidiary bank uses the same credit policies in
making commitments and conditional obligations as they do for on-balance-sheet
instruments. At March 31, 2009, commitments to extend credit and standby
letters of credit were approximately $135,882,000 and $4,819,000 respectively.

Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The subsidiary bank evaluates each customers
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary, by the subsidiary bank upon extension of credit is based on
managements credit evaluation of the counterparty. Collateral held varies, but
may include real estate, accounts receivable, inventory, property, plant and
equipment, and income-producing properties.

Standby
letters of credit are conditional commitments issued by the subsidiary bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing standby letters of credit is essentially the same as that
involved in extending loan facilities to customers. The subsidiary bank secures
the standby letters of credit with the same collateral used to secure the loan.
The maximum amount of credit that would be extended under standby letters of
credit is equal to the off-balance sheet contract amount. The standby letters
of credit have terms that expire in one year or less.

26

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LAND HELD FOR SALE

The
Corporation owns separate lots in Elburn, Aurora and Somonauk, Illinois that
have been removed from the land balance and are now shown on the Corporations
balance sheet as land held-for-sale, at the lower of cost or market. The land
in Elburn, approximately 2 acres, was purchased in 2003 for $930,000 in
anticipation of the construction of a branch facility. The land in Aurora,
consisting of two lots remaining from the original purchase of fourteen acres
in 2004 which was used to construct a branch facility has a cost basis of
$1,344,000. The land in Somonauk, acquired in 2005 during the acquisition of
FSB Bancorp, Inc., consists of approximately two acres with a cost basis of
$80,000.

LEGAL PROCEEDINGS

There
are various claims pending against the Corporations subsidiary bank, arising
in the normal course of business. Management believes, based upon consultation
with legal counsel, that liabilities arising from these proceedings, if any,
will not be material to the Corporations financial position or results of
operation.

QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

There has
been no material change in market risk since December 31, 2008, as reported in
PNBCs 2008 Annual Report on Form 10-K.

EFFECTS OF INFLATION

The
consolidated financial statements and related consolidated financial data
presented herein have been prepared in accordance with accounting principles
generally accepted in the United States of America and practices within the
banking industry which require the measurement of financial condition and
operating results in terms of historical dollars, without considering the
changes in the relative purchasing power of money over time due to inflation.
Unlike most industrial companies, virtually all the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates have
a more significant impact on a financial institutions performance than the
effects of general levels of inflation.

27

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PRINCETON NATIONAL BANCORP, INC. AND
SUBSIDIARY

The
following table sets forth (in thousands) details of average balances, interest
income and expense, and resulting annualized yields/costs for the Corporation
for the periods indicated, reported on a fully taxable equivalent basis, using
a tax rate of 34%.

|                                                          |  |                                    |           |                                    |   |              |  |                  |   |          |   |              |  |   |        |  |      |   | 
|--------------------------------------------------------- |  | ---------------------------------- | --------- | ---------------------------------- | - | ------------ |  | ---------------- | - | -------- | - | ------------ |  | - | ------ |  | ---- | - | 
|                                                          |  | Three Months Ended, March 31, 2009 |           | Three Months Ended, March 31, 2008 |  
|                                                          |  |                                    |           |                                    |  
|                                                          |  | Average
 Balance                   |           | Interest                           |   | Yield/
 Cost |  | Average
 Balance |   | Interest |   | Yield/
 Cost | 
|Average Interest-Earning Assets                           |  |                                    |           |                                    |   |              |  |                  |   |          |   |              |  |   |        |  |      |   | 
|                                                          |  |                                    |           |                                    |   |              |  |                  |   |          |   |              |  |   |        |  |      |   | 
|Interest-bearing deposits                                 |  | $                                  | 35,708    |                                    | $ | 16           |  | 0.18             | % |          | $ | 1,666        |  | $ | 12     |  | 2.90 | % | 
|Taxable investment securities                             |  |                                    | 148,917   |                                    |   | 1,803        |  | 4.91             | % |          |   | 134,622      |  |   | 1,617  |  | 4.83 | % | 
|Tax-exempt investment securities                          |  |                                    | 106,754   |                                    |   | 1,710        |  | 6.50             | % |          |   | 95,871       |  |   | 1,609  |  | 6.75 | % | 
|Federal funds sold                                        |  |                                    | 199       |                                    |   | 0            |  | 0.00             | % |          |   | 3,678        |  |   | 25     |  | 2.73 | % | 
|Net loans                                                 |  |                                    | 746,711   |                                    |   | 11,095       |  | 6.03             | % |          |   | 715,719      |  |   | 12,370 |  | 6.95 | % | 
|                                                          |  |                                    |           |                                    |   |              |  |                  |   |          |   |              |  |   |        |  |      |   | 
|Total interest-earning assets                             |  |                                    | 1,038,289 |                                    |   | 14,624       |  | 5.71             | % |          |   | 951,556      |  |   | 15,633 |  | 6.61 | % | 
|                                                          |  |                                    |           |                                    |   |              |  |                  |   |          |   |              |  |   |        |  |      |   | 
|Average non-interest earning assets                       |  |                                    | 148,259   |                                    |   |              |  |                  |   |          |   | 122,655      |  |   |        |  |      |   | 
|                                                          |  |                                    |           |                                    |   |              |  |                  |   |          |   |              |  |   |        |  |      |   | 
|Total average assets                                      |  | $                                  | 1,186,547 |                                    |   |              |  |                  |   |          | $ | 1,074,211    |  |   |        |  |      |   | 
|                                                          |  |                                    |           |                                    |   |              |  |                  |   |          |   |              |  |   |        |  |      |   | 
|Average Interest-Bearing Liabilities                      |  |                                    |           |                                    |   |              |  |                  |   |          |   |              |  |   |        |  |      |   | 
|                                                          |  |                                    |           |                                    |   |              |  |                  |   |          |   |              |  |   |        |  |      |   | 
|Interest-bearing demand deposits                          |  | $                                  | 262,338   |                                    |   | 736          |  | 1.14             | % |          | $ | 250,520      |  |   | 1,387  |  | 2.23 | % | 
|Savings deposits                                          |  |                                    | 63,167    |                                    |   | 12           |  | 0.08             | % |          |   | 60,376       |  |   | 21     |  | 0.14 | % | 
|Time deposits                                             |  |                                    | 567,448   |                                    |   | 4,399        |  | 3.14             | % |          |   | 495,143      |  |   | 5,265  |  | 4.28 | % | 
|Interest-bearing demand notes issued to the U.S. Treasury |  |                                    | 1,055     |                                    |   | 0            |  | 0.00             | % |          |   | 741          |  |   | 6      |  | 3.26 | % | 
|Federal funds purchased                                   |  |                                    | 1,029     |                                    |   | 1            |  | 0.39             | % |          |   | 3,697        |  |   | 38     |  | 4.13 | % | 
|Customer repurchase agreements                            |  |                                    | 30,708    |                                    |   | 81           |  | 1.07             | % |          |   | 34,447       |  |   | 242    |  | 2.83 | % | 
|Advances from Federal Home Loan Bank                      |  |                                    | 32,493    |                                    |   | 247          |  | 3.08             | % |          |   | 9,622        |  |   | 105    |  | 4.39 | % | 
|Trust preferred securities                                |  |                                    | 25,000    |                                    |   | 355          |  | 5.76             | % |          |   | 25,000       |  |   | 355    |  | 5.71 | % | 
|Note payable                                              |  |                                    | 9,631     |                                    |   | 96           |  | 4.04             | % |          |   | 14,550       |  |   | 193    |  | 5.33 | % | 
|                                                          |  |                                    |           |                                    |   |              |  |                  |   |          |   |              |  |   |        |  |      |   | 
|Total interest-bearing liabilities                        |  |                                    | 992,868   |                                    |   | 5,927        |  | 2.42             | % |          |   | 894,096      |  |   | 7,612  |  | 3.42 | % | 
|                                                          |  |                                    |           |                                    |   |              |  |                  |   |          |   |              |  |   |        |  |      |   | 
|Net yield on average interest-earning assets              |  |                                    |           |                                    | $ | 8,697        |  | 3.40             | % |          |   |              |  | $ | 8,021  |  | 3.39 | % | 
|                                                          |  |                                    |           |                                    |   |              |  |                  |   |          |   |              |  |   |        |  |      |   | 
|Average non-interest-bearing liabilities                  |  |                                    | 102,243   |                                    |   |              |  |                  |   |          |   | 111,505      |  |   |        |  |      |   | 
|                                                          |  |                                    |           |                                    |   |              |  |                  |   |          |   |              |  |   |        |  |      |   | 
|Average stockholders equity                              |  |                                    | 91,436    |                                    |   |              |  |                  |   |          |   | 68,610       |  |   |        |  |      |   | 
|                                                          |  |                                    |           |                                    |   |              |  |                  |   |          |   |              |  |   |        |  |      |   | 
|Total average liabilities and stockholders equity        |  | $                                  | 1,186,547 |                                    |   |              |  |                  |   |          | $ | 1,074,211    |  |   |        |  |      |   | 

The
following table reconciles tax-equivalent net interest income (as shown above)
to net interest income as reported on the Consolidated Statements of Income.

|                                      |  |                                       |       |      |   |       | 
|------------------------------------- |  | ------------------------------------- | ----- | ---- | - | ----- | 
|                                      |  | For the Three Months Ended
 March 31, |      
|                                      |  | 2009                                  |       | 2008 |  
|Net interest income as
 stated        |  | $                                     | 8,079 |      | $ | 7,454 | 
|Tax equivalent adjustment-investments |  |                                       | 582   |      |   | 547   | 
|Tax equivalent adjustment-loans       |  |                                       | 36    |      |   | 20    | 
|                                      |  |                                       |       |      |   |       | 
|Tax equivalent net interest
 income   |  | $                                     | 8,697 |      | $ | 8,021 | 

28

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Schedule 7. Controls and Procedures

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Disclosure
 controls and procedures. We evaluated the effectiveness of the design and
 operation of our disclosure controls and procedures as of March 31, 2009. Our
 disclosure controls and procedures are the controls and other procedures that
 we designed to ensure that we record, process, summarize and report in a
 timely manner the information we must disclose in reports that we file with
 or submit to the SEC. Tony J. Sorcic, President and Chief Executive Officer,
 and Todd D. Fanning, Senior Vice-President and Chief Financial Officer,
 reviewed and participated in this evaluation. Based on this evaluation,
 Messrs. Sorcic and Fanning concluded that, as of the date of their
 evaluation, our disclosure controls were effective.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(b) | Internal
 controls. There have not been any significant changes in our internal
 accounting controls or in other factors during the quarter ended March 31,
 2009 that could significantly affect those controls.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

29

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INDEX TO EXHIBITS

|                |  |                                                                                                                                                                                                                                                              
|--------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
 Number |  | Exhibit                                                                                                                                                                                                                                                      
|                |  |                                                                                                                                                                                                                                                              
|3.1             |  | Certificate
 of Designations for the Series B Preferred Stock (incorporated by reference
 from the Form 8-K filed on January 27, 2009).                                                                                                                      
|                |  |                                                                                                                                                                                                                                                              
|4.1             |  | Warrant to
 purchase up to 155,025 shares of Common Stock issued January 23,
 2009(incorporated by reference from the Form 8-K filed on January 29, 2009).                                                                                                   
|                |  |                                                                                                                                                                                                                                                              
|10.1            |  | Letter
 Agreement dated January 23, 2009 including the Securities Purchase Agreement
  Standard Terms incorporated by reference therein between the Company and
 the U.S. Treasury (incorporated by reference from the Form 8-K filed on
 January 29, 2009).
|                |  |                                                                                                                                                                                                                                                              
|10.2            |  | Form of
 Waiver of Senior Executive Officers (incorporated by reference from the Form
 8-K filed on January 29, 2009).                                                                                                                                       
|                |  |                                                                                                                                                                                                                                                              
|10.3            |  | Form of
 Omnibus Amendment Agreement (incorporated by reference from the Form 8-K
 filed on January 29, 2009).                                                                                                                                               
|                |  |                                                                                                                                                                                                                                                              
|31.1            |  | Certification
 of Tony J. Sorcic required by Rule 13a-14(a).                                                                                                                                                                                                 
|                |  |                                                                                                                                                                                                                                                              
|31.2            |  | Certification
 of Todd D. Fanning required by Rule 13a-14(a).                                                                                                                                                                                                
|                |  |                                                                                                                                                                                                                                                              
|32.1            |  | Certification
 of Tony J. Sorcic required by Rule 13a-14(b) and Section 906 of the
 Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.                                                                                                                      
|                |  |                                                                                                                                                                                                                                                              
|32.2            |  | Certification
 of Todd D. Fanning required by Rule 13a-14(b) and Section 906 of the
 Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.                                                                                                                     

30

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